Selling a Tenant-Occupied Property

September 23, 2022

Is it legal to sell a house with existing tenants? Is it wise? Here’s what you need to know about selling a tenant-occupied property.

When you’re ready to sell your rental property, existing tenants can complicate the process. While there is usually nothing illegal about selling a tenant-occupied property, it might narrow the pool of potential buyers. It’s possible you could find a buyer looking to earn rental income who might view a current lease as a good investment. But many buyers will find a current tenant to be an unappealing prospect.

Even if you find a buyer looking to rent out your property, they may prefer screening tenants themselves. Buyers looking for a primary residence, meanwhile, will probably be deterred by current tenants, especially if they’re looking to move quickly.

If you’re aiming to maximize net proceeds with a market listing, it’s in your best interest to clear out the property, make any necessary repairs, and stage the home before selling. If you’re in a bigger hurry, an off-market sale is a faster way to approach the problem.

Regardless of how you sell the house, you’ll need to have a plan to responsibly, ethically, and legally consider the needs of the current tenants. Follow these tips to help you make the right decision.

Related: Tired of Being a Landlord? What to Do Next

Wait for the lease term to end

Your easiest option is likely to wait for the lease to expire, especially if you’re still making a profit from the rental. Once the tenants move out, you can prepare the home for sale.

It’s also possible to terminate the lease before it expires if your tenant has violated any terms of the agreement. For example, if they damage the property or refuse to pay rent, you may be able to proceed with an eviction, provided there isn’t an eviction moratorium in place in your area. Depending on where you live, the eviction process could take months and require costly legal fees. You’ll want to avoid eviction proceedings if you can. This, however, is something you should be sure to seek legal counsel for.

If you’ve included an early termination clause in your lease, or if your tenants are leasing month-to-month, all that will be required is some notice based on your state’s requirements. But if your tenants are still finishing out a fixed lease and you want to sell the property, you have other options.

Sell to an investor

It may be possible to sell your property off-market to an investor who doesn’t mind the existing lease. If you have long-term, reliable tenants, your tenant-occupied property may even be attractive to investors.

However, if your tenants are currently paying below-market rent, that could negatively impact the value of your property. In this case, you’ll likely earn more from the sale of your property if your tenants move out first.

Related: How Does Sundae’s Marketplace Get Me a Better Price Than the MLS

Provide cash for keys

If you want your property empty before selling it, one approach is to provide the tenant with a monetary incentive for vacating the premises early. This process is known as “cash for keys.” It’s less expensive and time-intensive than an eviction, and it often lets you reach more potential buyers and sell your property faster.

If you decide to go this route, make sure the tenant agrees to it in writing. Use a form to designate the tenant’s move-out date and what sum will be due to them upon inspection of the premises. You’ll need to be there on the tenant’s move-out date to complete a walkthrough before you exchange the keys for the funds.

How much should you pay the tenant?

So, how much should you offer the tenant? The more you’re able to offer, the more cooperative the tenant will likely be. Consider offering enough to cover:

  • Moving expenses
  • Temporary housing
  • Security deposit on a new rental
  • The difference in rent if comparable properties in the area are more expensive

Do some research on the cost of an eviction or court fees during a legal challenge. Every location and situation is different. Remember that your offer is negotiable so be prepared for a counter offer. Finally, be aware of how local laws, such as rent control or other tenant protections, influence your offer.

If you’re too strapped for cash to offer anything and quickly need the profits from the sale of your rental property, consider requesting an offer from Sundae’s marketplace. We’ll even give you a cash advance of up to $10,000 for eligible sellers, which is money you can use to persuade your tenants to vacate early. Going this route will also save you from having to make repairs, hire a real estate agent, and pay additional closing costs.

Mistakes to avoid

If your tenant is struggling to pay rent, they’ll probably be happy to receive some cash for you to help with relocation. But if they don’t agree to move out, you shouldn’t harass or threaten them, nor try to evict them yourself without taking them to court. It’s illegal to prevent tenants from accessing or using their rental unit while bound by a lease agreement, so don’t change the locks or shut off the utilities. You’ll need to do everything by the book to avoid fines or a lawsuit. This article is not legal advice. Please research all applicable local laws and consult an attorney for legal advice if you need it.

It’s important to get a “cash for keys” agreement in writing. If the tenant verbally agrees to a “cash for keys” arrangement but later refuses to vacate the property prior to the sale of the property, you could be on the hook for the new owner’s eviction costs.

It will be to your advantage to be friendly and accommodating towards your tenants, even if they’re making it difficult for you to sell the property. Having an honest conversation about your situation and offering a small incentive can go a long way in getting a tenant to agree to your terms.

This article is intended for informational purposes only, and is not intended to be legal advice. Consult with a local real estate attorney before taking any steps that may jeopardize your rights or subject you to liability.

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